All right. Good morning, everyone. Thank you for attending this session. I'm Delphine Lee from the European Banks team at J.P. Morgan. I have the pleasure to have Leopoldo Alvear today, CFO of SocGen , with us. Thank you, Leo, for coming.
Pleasure's all mine. Thank you very much for having me over.
Great. So maybe we dive directly to capital and distribution, if you don't mind.
Okay.
I mean, CT1 is well above your target of 13%, and you've just announced another EUR 1 billion share buyback. Now, going forward, do you intend to assess the amount of buybacks only once a year with full-year results, or are you—are you keeping a buffer as well for FRTB? Also, with a stronger organic capital generation than in the past, do you consider structurally increasing your ordinary payout policy from 50%?
All right. Thank you. I think we haven't changed our policy here. We announced three years ago that we wanted to run the bank with 13% CT1. We have been able—and that was a target, basically, for 2026, by the end of 2026. We have been able to achieve the target well ahead of schedule. We do not want to build a buffer on the buffer. In other words, the 13% already incorporates a buffer, a management buffer, which is the one that we announced back in 2023. We just announced the second extraordinary buyback, or extraordinary distribution, this Monday. We announced the first one in July. We entered the execution of that one just before the presentation of the third quarter. We announced this second one this Monday, basically. We aim to keep on doing the same thing going forward.
In other words, every time we have excess capital, we will decide whether to invest that in organic growth, as long as, you know, we can grow the bank without changing our risk profile while generating an extra return on the one that we are making. We can also employ that capital in inorganic acquisitions should we find anything that was appealing for our shareholders. We will return the capital to the owners, which are the shareholders, because at the end of the day, we are only stewardshipping the capital, no? Depending on what's the best return, that's what we do. Currently, you know, share buybacks, where we are trading, are certainly a very good opportunity for our shareholders, especially because they entail no risk, if you wish, no?
This is always a decision that needs to be made by the board of directors of the bank, which is the case so far, no? When we look at the distribution of capital, we like to basically separate what we have, what we call recurrent distribution, which would be the payout that we give out every year, and the excess capital distribution, no? Within the recurrent part, last year, we upgraded and increased our payout from the region of 40%-50% to 50%. Why? Basically because of two reasons. On the one hand, we had already achieved the capital target we were aiming to achieve. In other words, the build-up phase was already behind us. Second, we had increased our profitability.
In other words, with the 50% of retained earnings, we can still cope to increase the balance sheet of the bank, which at the end of the day is what we should be aiming for, no? In other words, this 50% is recurrent. It's something that we can do every year despite growing our balance sheet. Now, with the reminder, what we say is this excess capital, distribution and, what we have shared, with the market, it's basically that we will do it if we have generated excess capital, which is what we're doing every quarter. Now we're generating capital around 10 basis points in average every quarter, and we will devote it to the three things that I mentioned, either organic, inorganic, or excess distribution. I don't think anything will change on that regard.
On top of that, as per the recurrent policy, what we introduced also in July was the introduction of an interim cash revenue, which is, to, has already been paid. It was announced in July. It was paid in October, and this should be going forward. In the past, as per the payout, what we have done is, basically a 50%-50% split between cash, dividend and, share buyback. I think as long as the cash part of the equation, can grow, perhaps we could be a little bit more flexible on the 50/50 split. Again, as always, this is, a board decision. Bottom line, I do not think anything has changed. We are, delivering what we promised, which is that, we increased our payout ratio. We, put an interim dividend, on the table, and we are distributing the excess capital when we generate it.
Do you think French politics can derail your medium-term ambitions to return that capital to shareholders, or?
There has been a lot of noise about, you know, some of the proposals that are out there, within the budgeting process. At this point, I have no, no further visibility. It is still under the negotiation of the different parties. We do not know when we are going to get this kind of agreement or if there is going to be a budget. We personally believe that the chances of these extraordinary tax on buybacks are slim, but we will need to wait. In any case, again, nothing will change from our standpoint. We will always be very disciplined as to what to do with the capital. Of course, we will always take into account what are the financials behind the potential distribution of that capital to shareholders and what makes sense from a mathematical standpoint for our shareholders.
Again, my message here would be, the one that I tried to deliver before. The capital is not ours. It belongs to our shareholders. We will try to do what's best for them, in any given circumstances.
Great. Thank you. Now, moving on to profitability and costs. With expenses down minus 2% year on year so far this year, I mean, you've done a great job at reducing costs, but our consensus is still somewhat skeptical about the target of, you know, below 60% for cost-income ratio in 2026. How do you intend to meet your cost-income target? Maybe I'll start with that.
Sure. When we disclosed our strategic plan two and a half years ago, or two years ago, basically in September 2023, we were aiming to fulfill two or three targets, no? The first one, we were aiming to change the governance and the culture of the bank, and we are in the middle of doing that. We wanted to streamline the bank to basically retain what was core for the bank and dispose those activities that were not, we did not think were core because they were not bringing synergies. They were not in the right places or did not, you know, make the right profitability. We wanted to raise our capital to 13%.
The fact that we did the streamlining faster and probably on the higher range of what we were expecting has brought us to the position that we have today where, you know, we're well ahead of the schedule on capital and we have excess capital at this point. Finally, we wanted to increase the returns of the bank. That was basically driven by the cost of income. When I was looking at the bank last year before joining, my conclusion was that, of course, we're in the right banking business, so we lend, and therefore there are risks involved. When I look over the last six years, you know, the cost of risk has been relatively stable if we strip out COVID in 2020 and the reversal of COVID in 2021. We've been in the mid-25, mid-20 space on that regard.
Basically, the big issue of the bank was always the cost-income in order to foster profitability. Back in 2023, our cost-income was in the mid-70 space. That is where we set this target, which was, honestly, a challenging target for us to reach this 60% by next year. Now, in 2024, we brought down the cost-income below 70%. We were aiming this year to bring it down by 66%. In June, we upgraded that guidance towards below 65% because we were doing better in both revenues and costs, no? In the ninth month of the year, we are around 64%, a little bit short, or shy of 64%. Well on track to, in my opinion, deliver the target set for 2025. We have a further step to take, which is this 60% for 2026.
I mean, the commitment of the management is absolute. We know that we have been able to regain some confidence from the market, and therefore we need to deliver on all the targets that we promised. Therefore, our commitment for the 60% is absolute for next year. How are we going to achieve it? I think, obviously, it's a ratio that combines revenues and costs, as its ratio says, no? On the revenue side, I think we're going to keep on seeing some expansion on French retail, just like we're seeing this year for the different trends that we've seen behind. We're certainly going to see an expansion in BoursoBank because another one of the targets and guidances that we set with the markets was that BoursoBank should make next year EUR 300 million of net profit.
If you gross that up by taxes, that's basically MBI because it will be driven significantly by a reduction of the acquisition of new clients. That's a big burst on revenues on that side. We should also probably see some expansion in the part of financial advisory of our CIB business. We think that revenues can grow a little bit next year. Nothing super spectacular, but the trend should continue to be positive in that regard. On the cost side of things, what we need, we're going to see a further reduction. When we said we wanted to aim for this 60% cost-income ratio, that embedded that we were going to invest EUR 1 billion in restructuring charges or cost to achieve, which in our case is booked in the OpEx line.
Of EUR 600 million, close to EUR 650 million of those EUR 1 billion were already invested in 2024. A big chunk of the remainder will be invested in 2025. That is one of the reasons cost-income is coming down this year. It will go further down in 2026 because we will not have those restructuring charges as part of the OpEx. Second, thing that we will see next year, it is some cost cutting still coming from the merger of our two brick-and-mortar retail networks, so basically Crédit du Nord and Société Générale. We will also see, obviously, some cost cutting coming from Ayvens. Ayvens itself launched in 2023, again, a strategic plan which lasts until next year. They are aiming this year for a cost-income in the 57% space and a 52% next year.
For certain, we're going to see a reduction in costs coming from Ayvens and therefore at a group level, no? We're also putting a lot of cost discipline, since this year on the FTEs. Basically, we have attrition. We have an attrition rate all over in the group, and especially in France. We are putting tight control on basically the replacement rate of that attrition. We are controlling all the costs. We have a cost control tower. We are also having a different view on the IT expenditure. IT expenditure for bank is huge. It's a big part of the costs. We are trying to reshuffle the IT investment towards a more productive one. We already saw last year that the total IT expenditure went down for the first time in 15 years in some chain or more.
We've seen the same this year. We shall be seeing that in the coming years, not only in 2026, but beyond 2026 because, you know, IT is more a multi-year program, if you wish, no? These are more or less the context or the levers that we want to push to reach that 60%. Again, as I started saying, our commitment is absolute on that regard. Honestly, I do not think it even finishes in 2026, no? Because, if I look at the landscape of banks, no? I mean, going from mid-70s to 60 in three years, in my opinion, is a good achievement. Obviously, we need to move forward. We need to go further down on that cost-income ratio if we want to increase our profitability beyond 2026. Obviously, that is our focus, no?
It will be a mix of, because nothing is black or white in life, it will be a mix of further increase of the revenues. I think certainly we will have opportunities. We have, we will have opportunities there in French retail. We will have opportunities there in financial and advisory. We will have opportunities in Ayvens, no? Ayvens, once it is finished, the merger, I think it is, it is, it is, it will be a very profitable, you know, part of the business to put some, some RWAs to work, no?
It will also be costs because it's not only the cost of income, because cost of income, it's comparable to other players, but up to a point because some other, I mean, for example, I don't think, a bank like, with, with the current mix of businesses that we have can aim to have a cost of income in the low 40s space because we're a different animal, if you wish, no? Our CIB weighs more, which has a higher cost of income and so on and so forth, no? When we look not only at the cost of income, but at costs, and we look at ratios like costs on RWA, we are higher than our peers, no? We are probably at around 4.5%. And, you know, the best in class in that regard is probably more in the 3.5% space.
I think there's also going to be, I mean, the discipline on costs will go beyond certainly 2026.
RT is progressing well towards a 9%-10% target in 2026. Longer term, why would the profitability be structurally lower than the sector's?
I don't think now, once we've streamlined the bank, I don't think there's anything in the perimeter of the bank that would prevent us to keep on increasing our profitability. The increase of that profitability, all things being equal, will be based on a further reduction on the cost-income. This is, you know, an expansion of revenues, which I think after 2027, no? Some of our businesses are still in the restructuring mode like Ayvens, no? We'll have, and it's a number one player, so it certainly could expand the revenues going forward, but also, as I mentioned, French retail, also I think on the financial advisory world of things, and certainly on the reduction and firm cost discipline on all the cost side of things beyond 2026. Again, it's a cost-income issue.
Yeah. Okay. Great. Coming back to French retail, net income has finally rebounded in Q3, with some encouraging signs on the lending volumes. Have you seen any impact from the political uncertainty? When can we see better trends for deposits? You know, one of your French peers expects French retail revenues to grow more than 5% in coming years. Can SocGen deliver the same growth? If not, why?
Okay. Going one by one on the few questions that you mentioned, yes, I think we've seen a clear trend this year on French retail. It's been going up through the course of different quarters. If I look at Q3 on Q2, you know, NII was up 3.5%. So we're already seeing, you know, the realization of those trends, no? I think French retail will keep on this trend going forward. We should be seeing, you know, a slight increase in revenues going forward in the coming quarters. This is driven basically by three or four levers, no? On the one hand, it's by the stabilization of the mix of deposits. I think this has taken longer than other geographies in Europe for a number of reasons.
Among them, for example, when I look at France, we don't have such a homogeneous, you know, loan to deposit among the different banks as the one that I had in Spain where all banks were below 90. Here there's a little bit more of a variety of situations. That fosters volumes, and therefore there's more competition. Now we see that the mix between term and sight deposit have come to an end. Actually, it's perhaps slightly going down now in this quarter, but at least it's stabilized, if you wish, no? On the other hand, the cost of those deposits, which in France are very much triggered by the regulated products, by the Livret A and the so, again, are coming down because rates are coming down, no? In overall, the cost of funding is coming down.
It is coming down for everybody in the sector. I agree with you that the trends, some of the trends that some of our competitors may be sharing, we are in the same place, if you wish. The second lever that could foster, you know, NII growth in the future, or is fostering right now, is the repricing of the fixed assets, especially the mortgages. This is already happening, but it will take a long time because, you know, these are relatively long duration assets, 8 - 10 years. We will see it, but it will be slow. It is also a positive trend, if you wish, going forward, no? The third one could be volumes. Volumes is very much linked to the macro, and very much linked to GDP, if you wish, no?
We are in an environment where we see that France is in the 1% space growth, for this year and probably the coming years, a little bit more if we add inflation. We could have some volume growth. Again, you know, not something very spectacular because it's driven by the macro, basically, no? All in all, these trends, these trends are certainly showing, you know, the right direction that we shall be seeing NII growing, in the, in the coming years. As to give a specific guidance, you know, we don't, we don't provide it, honestly, because there's too many moving parts, no? I mentioned, no? It's the number of clients. It's the mix between site and term. It's the cost of funding, which is driven by, you know, external parties. It's the volume growth, which is given by, driven by, GDP or, or the macro, no?
All in all, everything, it's in the right direction. Everything shows that everything should be growing. Therefore, we should keep on seeing an expansion, not only in 2025, but obviously in the years to come, no? Because we all play with the same grounds and roots, if you wish.
You're not seeing any impact of, from the political.
Oh, sorry, you mentioned that one, no? Honestly, no. I mean, nothing on the asset quality side. If I do not know if that was your question, but on the asset quality side, this is much more driven longer term, especially in individuals, because it is basically driven by GDP. It is driven by unemployment rate, and it is driven by real estate prices and all those things. I mean, while mild in the case of GDP, but it is positive. It is not impacting. We are not seeing anything on the unemployment. We are not seeing anything on the price of real estate. On the other hand, a slow growth does have an impact on loan demand. That was already the case before. Nothing new that we have seen, no?
Finally, if you wish, because we were talking about NII, but it is worth remembering that the full revenues of this segment is slightly different from other geographies, no? For example, if I compare to Spain, you know, we have 50% of NII and 50% of fees, of free business in France. In Spain, it is probably 2,000, one-third, which gives, again, stability to the revenue line. Actually, fees in France have a very good trajectory because they are very much based also on the fact that a vast part of the savings of a country go off balance sheet towards, you know, the insurance wrappers or the mutual funds. Actually, we are seeing that the client funds are growing in through the course of all this year, no?
Great. Can I now ask on the BoursoBank ? The bank has already achieved this target of 8 million clients. Do you still expect to slow down the pace of client acquisitions to achieve the more than EUR 300 million net profit target for 2026? I mean, how far are the profits from that level?
Again, we'll come back to our commitments as per the CMD. In BoursoBank , we had basically two. One was to achieve 8 million clients by the end of 2026. The second one was to also achieve EUR 300 million in net profits, no? We're committed to all our targets. It couldn't be less in BoursoBank . On the client side of things, we've been able to reach the target well ahead of our schedule. We were already at 8 million clients in July, basically. At the end of Q3, we are at around 8.3 million clients. We're going to keep on growing our clients during the course of 2025 for certain, no? With the same pace, no? I think, honestly, this is an asset I didn't know when I joined.
I was very surprised about it. I think it's an asset that has huge potential, coming from retail, no? Which is the best part of my, of my previous experience, no? This is an asset which is growing 20% clients every year, 75% growth in 2021. A huge expansion, while they're only losing less than 4% of the clients every 12 months, which again, in my experience in digital deposits or digital clients or digital banking, it's a rate that I haven't seen, no? Especially if you take into account that by definition, when you join BoursoBank , you need to be bankerised because that's a strategy we decided. Basically, you are joining BoursoBank , and BoursoBank is your second bank by definition, if you wish, no? The fact that 12, and you're joining because you're being offered a good proposal, no?
The fact that 12 months on the road, you are still a client of BoursoBank and less than 4% are leaving, that can only be driven by the fact that you are being engaged into more relationship with the bank, if you wish, no? That is driven again by the fact that we have the products and we have the NPS because we are number one NPS in France. We basically deliver what we promise. That is why people are retaining BoursoBank . That has also helped on the fact that we have achieved the amount of clients with lower expense than what we thought. When we disclosed this back in 2023, we shared with the market that we thought that reaching the 8 million threshold of clients was going to cost us around EUR 150 million of negative DOI.
We have never had negative DOI since 2023. It has been cheaper, if you wish, than expected, no? Now, for next year, we want to show the monetization of our clients again, to, and share it with everybody. We are fully committed to delivering the EUR 300 million of net income. That is actually, I just mentioned before, one of the triggers that should help us reach the 60% cost-income, no? What we are revisiting right now is our overall strategy because we also think that it would probably be the wrong strategic decision to stop growing our client base, no? Because again, as I mentioned before, this is a bank which has north of 8 million clients and 1,100 employees.
This is a bank that, in my opinion, has the option to be, you know, a significant player in the French market, a significant disruptor in the French market, no? When I look at what a retail bank needs to deliver or provide, you know, if I oversimplify, there are three things that you need for a retail bank to work, no? First, you need to be able to provide the products. The fact that BoursoBank started as a broker a long time ago has made it possible that they offer 40-50 products. Basically, 99% of what any given client could need, if you wish, no? Second, obviously, you need to provide those products competitively. Basically, you need to be able to provide good prices. The fact that you have 1,100 workforce allows you to be cheap.
It is basically competitive, no? The third thing that you need is that the client has that need, no? My point being that you need to work on the vintages in the mid-long term. You cannot, you know, monetize everything in two years because, for example, if the amount of clients or the average of clients that we have in BoursoBank , which are obviously different from the ones that we have in the neighborhood, are younger, but I might have the best mortgage in place, but they need to have the need of buying a house. It will come, but not necessarily in the first six months, no?
My point being, when I look at the NBI per client in my brick- and- mortar network and in BoursoBank , one is significantly higher than the other because the vintages are much, are much longer, no? We're still, you know, we're seeing already, you know, the monetization of the current vintages. This can be seen, for example, on the assets under management per client. We have EUR 10,000, we have EUR 76 billion in assets under management in BoursoBank . That's roughly EUR 10,000 per client, which is a very sizable amount in retail overall, not even in, in, in digital.
Back to your question, yes, we are aiming to reach an EUR 300 million threshold of net income next year while we're studying opportunities on how to keep on growing our client base because I think it's, it will be the, it's the right strategic decision going forward.
Okay, great. Now turning to GBIS, it is on track to deliver another strong year on very supportive market conditions. That said, your equities business seem to have underperformed peers recently. What is driving this? Also, do you have any concerns on your exposures to private credit? How's your partnership with Brookfield going?
All right. So, basically, the business is doing good. So it's been doing good all through the year. It's done good in the third quarter. GBIS, CIB business has grown, you know, revenues went up 2% this quarter and costs went down 1%. So basically, the jaws are expanding rapidly. We reached, Romney of, in the north of 17%. So again, pretty healthy. When we break down that between the two main businesses that we have, which are on the one hand, the markets and on the other hand, GLBA, markets were slightly up versus a probably record year last year. So the base was very high, very high last year, while GLBA was 7% ahead of last year, no? Overall, the business, GBIS was ahead of consensus, slightly ahead of consensus.
When we look specifically, we are happy with the evolution of the business, if I may, no? On a super conducive 2024, altogether, no? Record year 2024. When we look at the markets business, again, we are up versus probably a record third quarter last year, as I mentioned, with an impact, a significant impact of day one accounting. You might remember last year in this business, we made in the full 2024, EUR 5.9 billion of revenues. When we were guiding for 2025, we guided for EUR 5.5 billion. That was based on two things. On the one, we disclosed this and shared this with the market last year. The first one was that last year we had a positive impact coming in from day one accounting of EUR 200 million, which we were not expecting for this year.
A significant chunk of that was in the third quarter. That is an impact, you know, from one quarter to the other. The second one was that last year we had very conducive conditions, market conditions, and we thought perhaps this year we wouldn't, no? I think, you know, we are now well on track to have a very, very good year overall in, in the markets business. This quarter specifically, if we were to adjust for this day one accounting, which last year was positive, and this quarter actually is negative because we are, we've been very active commercially. This means that we have built reserves, which has a negative impact in, in P&L, but it's actually good because we will see those reserves coming through in the future. The global markets business would have grown above double digit. Basically with our peers, if you wish, no?
On top of that, we have been, and the, and sorry, within these global markets, we had an evolution of, you know, equities - 7%, which again, without the day one accounting would have been high single digit. And then, you know, a FIC, which was basically + 7%. Did well already, no? On top of this revenue evolution, we saw we were very disciplined in costs. Costs went down 5%. The gross operating income for the business Q year- on- year was + 12%. As per the equities itself, we also need to take into account, you know, the mix of our businesses. We are more leveraged towards secure financing or, basically, quantitative market making.
For those businesses, probably the volatility in the market has been less conducive than for prime brokerage or cash equities, which is where we have a lower market share in this regard, no? The combination of all things are explaining the evolution. Honestly, in our case, we are quite, quite happy about the evolution, through the course of the year.
Okay. And.
Sorry. You talked about private credit.
Private credit, yes.
Our exposure to private credit, it's, it's small. We disclosed it in Q3. We have, around 1.3% of EAD or 1.9% if we include securitizations, no? We had no exposure to any of the names that have been on the headline in, in the last, few months. We, focus this business or only with the top tier one players. And we never, you know, write, a specific, underline based on names, but based on the over-collateralization of the underline of the specific transaction, based always on a very granular, you know, and diversified, and diversified, base, no? That's our focus here. I mean, in general, for the banking industry, you know, diversification is a key, you know, to control risks, specifically in this business, which is a business, in which we've been working for a long time.
It's not something, you know, that we are, you know, a newcomer into a crowded place. We've been in this place for a long time. We're certainly not going to be rushing to get positions where we are not comfortable with the risk. I mean, we're not changing certainly our risk approach to this or any other business, even now that we have excess capital. It could be easy for the bank, for example, a bank as large as us, to grow rapidly. That would lead us probably to the wrong place in the future. We're not doing that. We are being quite cautious on that regard, no? Actually, you mentioned Brookfield. I think this is a good example. We're doing less good than we expected. We're growing slowly than we expected, within our Brookfield JV. Why?
Because we're offering products with lower risk and therefore lower yield. The market now has more appetite for higher yield. I think at some point this will come back and we are still very hopeful on this, on this joint venture. I think this kind of products will again have some demand in the future, no? Right now, the market is more focused on riskier products than the ones that we are offering, on the table.
Great. Maybe I can ask on Ayvens as well. I mean, when do you expect to see some improvement in the fleet volumes and how much can total margins improve from the current levels of, you know, 5 70 basis points roughly?
In Ayvens, the group decided last year to change a little bit the strategy, based on the market conditions. We pulled the brakes on the fleet production, because we thought that the margins at which they were being printed were too competitive, and also we had uncertainties as to the evolution and the residual value of electric vehicles, no?
Mm-hmm.
Honestly, now in hindsight, I was not there. So looking back, from the future, I think it was the right decision to be made. We've seen since then, you know, a significant market expand, margin expansion towards the 570 that you were, you were mentioning, a minute ago, while some of our peers are below 500 basis points, no? And reducing margins while we have increased margins, no? Also we, you know, reviewed all the residual value of our electric vehicles last year. And although we do it every quarter, we have not had to do any further, you know, appraisals or impacts. We have not taken any impacts through the course of this year. Now, the fleet is relatively stable. We have around 3.2 million cars.
We have been revisiting, you know, our position this year with brokers in the U.K., with, you know, the fleet in Germany or in Turkey for, you know, Turkey for inflation, so on and so forth. I think we've done that job, no? In the middle of that, we're in the middle of the merger of ALD and LeasePlan, which is a complex merger because it entitles a very large amount of geographies and countries. A big number of legal entities plus the merger of different platforms plus just not to avoid any kind of fund becoming a bank. It's a complex situation. We're well on track. We are aiming to have a cost-income ratio of 57% this year and then 52% next year, no?
I think, next year we should see, you know, a stability on the earning assets, you know? I think there's certainly an opportunity while protecting margins, as you mentioned. I think there's certainly an opportunity to grow that fleet, from there onwards. We're number one player. We have the size, you know, increasing our fleet once we have certainty and we have the grounds for the merger in place. Therefore we are more agile to do it, and have more resources, to do it. It's certainly somewhere where the operational leverage is very high. For every other car that we sell, we don't necessarily need more people to do it, you know? It's a big operational leverage on 50% of the income, which is, you know, that leasing.
On the maintenance part, there is of course some cost involved, but overall the operational leverage is very high, no? This is a business that next year shall be making mid-teen returns on return on tangible equities. We are above the group, so it is going to be a critic for the group. Certainly, once the grounds for that growth are without, you know, putting in risk the margins, we are certainly going to be there.
Okay, wonderful. Just conscious of time, so maybe I can stop here and, checking if anyone has any questions in the audience. Don't be shy, no? Yep, Gigi.
Hi, it's Gigi Sparling from J.P. Morgan. You talked a little bit earlier about the share buyback, proposals in the budget, but could you talk a little bit more broadly about the political landscape in France? Some of the comments which have come out of various political parties seem quite anti-bank. For example, cap on bank fees. Do you have any thoughts about what's going on behind the scenes, please? Thank you.
Not much to say about behind the scene, to be completely honest with you. I see, I think my personal view, what we're seeing in France, it's a very fragmented parliament. I mean, it's something similar to what I've seen perhaps in my previous, my country of origin, you know, where we've had a fragmented parliament for a number of years already. You know, the good things is that the governance in Europe is very strong. Even if you don't have an agreement, the budgets are rolled over. We can look at Spain. I think we haven't had a budget for the last three years, and I'm not sure whether we're going to have a budget anytime soon.
You know, the previous budget is rolled over, and therefore there's no lockdown like in the U.S., no? As a matter of fact, you know, when rolling out budget, that's even good for deficit because it does not roll out inflation. If that was to happen in France, for example, we could see a reduction of EUR 25 billion-EUR 30 billion in deficit, no? I don't know if it's going to happen or not. Obviously, I don't have the insight, but, you know, it wouldn't be the worst scenario from a deficit standpoint, no? Again, what we're seeing is that in fragmented parliaments, you see a lot of proposals. Again, I've seen this in my previous country of origin for a few years. The vast majority of those proposals never come through.
Is this going to be the case in France? I don't know. We'll have to wait and see for that, on that regard. Certainly, when you are talking about fees, when I look at, you know, the fees that we are charging in France compared to the fees that are being charged in the rest of Europe, in France are already lower, no? There is no specific reason, you know, to push for lower fees because we are charging more than others because we are in a different, completely different situation in that regard.
Any other questions?
I'll ask a question.
Yeah.
Do your cost saving targets have much baked in for benefits from AI when you talk about, you know, your cost income targets, which are already quite impressive? You know, it strikes me that, you know, you either believe AI is going to change the world or it's not. If it is, I can't see why it won't have a sort of radical effect on the cost basis of banks. I mean, for instance, one of the big lawyers in London this morning has said they're going to reduce admin staff by 10%. You are starting to see some quite dramatic announcements. Yet we haven't really heard anything from any of the banks on it. Thanks.
Sure. I think, on the targets that I set for 2026, I'm not counting on AI. That's basically driven by other, you know, the rest of the layer, the levers that I tried to explain before. I think AI right now, it's very efficient on coding. I think AI is very efficient on, you know, summarizing large amounts of information or even extracting information from very different data sets, if you wish, no? I certainly think there is a big potential in AI for all industries. Of course, banks will be one of those, no? I am not so certain that that's going to be so fast in the banking industry because, for example, I can see opportunities in AI, in the models, for example, in the modelization, no? In the modelization of all our relationships.
All those models need to go through the supervision of regulators. I'm sure regulators will ask for, you know, a proof. Basically, some period where you have, you know, two models running in parallel, where you have the former old model, if you wish, no? And the new AI model. They will need some time to prove that models are working, you know, at the same speed or better speed, if you wish, no? That they are reliable at the end of the day, no? That's not something that you, I mean, in my experience, certainly I've never had a model approved with a regulator in none of my shops in a couple of quarters. It takes much longer than that, no?
I do think there are theoretically vast opportunities coming out of AI, and for certain that would impact the cost basis of banks. I think this is something that we will see down the road. We're not counting on that on 2026, but of course, as you can imagine, we're trying to do a lot of things on that, on that regard. I think it's more something that we will see beyond 2026.
Great. I think we're running out of time, but, Leo, thank you very much.
Thank you.
For your insights. Thank you very much for attending the session. Thanks a lot.
Thank you very much.